Managing Cash Flow During A Period Of Crisis

by Karen Stern and Amy Julian

The ongoing COVID-19 pandemic is disrupting supply chains, financial markets and workforce mobility. During any crisis, organizations must determine which processes are critical to continue operations and which processes can be suspended temporarily. It’s also imperative to understand what resources are required to support critical operations.

With the sudden decrease in sales for many businesses, the scramble to figure out what to pay and when is also starting. A deep understanding of your obligations and how you prioritize each one should be considered when making these decisions. Using a cash forecast to minimize surprises and enable these conversations could still be your competitive advantage. A cash model focused on short term cash management can give clear guidance on how to:

- Shorten time to collect by tightening up receivables.
- Lengthen time to pay by updating your payables strategy.
- Reduce inventory to shorten time between input costs and sales.

Beyond the current crisis, a basic cash management model can give you insight into valuation, efficiency, and profitability. It also provides tactical benefits by giving you confidence to make critical business decisions. Beyond short-term cash management, a cash model can also help you achieve objectives such as interest and debt reduction or long-term planning and budgeting.

Understanding working capital, how to build a forecast, the key components of cash flow, and the impact it can have on your supply chain can make the difference between a resilient organization and one that struggles to make business decisions in the face of crisis. It’s important to take measures now to reduce future risks, if your business hasn’t already.

For more information on cash flow optimization and the ways your business can prepare for disruption, please contact Amy Julian, Director, Advisory Services, at ajulian@bswllc.com or 314.687.2314.

Karen Stern, CPA, (kstern@bswllc.com), partner in charge, Brown Smith Wallace Entrepreneurial Services Group, provides tax and accounting services for companies ranging from start-ups to $20 million in revenue.